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 Post subject: Mom as credit card - could this be good for her?
PostPosted: Wed Apr 06, 2011 8:55 am 

Joined: Thu Aug 13, 2009 2:17 pm
Posts: 4
I have an idea that I think would help both my mother and myself, but I want to make sure that it helps my mother and isn't just helpful to me.

For a variety of reasons (that aren't important here) I manage my mother's money and she basically doesn't want to think about it. While she hasn't set a retirement date, it will be somewhere between 3-5 years from now. She has quite a bit in cash/money market accounts and while we have talked about finding new places for that money she is reluctant to do much with it. When I suggest that we see someone/invest the money/create a CD ladder etc, she doesn't want to talk about it and says "Just do what you think is best honey". She has her head in the sand and there's not a lot I can do about it.

This isn't my question, it's just the background.

It would be good for her to make more money on the money she has sitting in her account. Additionally, I have some credit card debt that I pay towards every month. It's substantial, and it will take me a number of years - say 4 or 5 to finish paying it off. I'm chipping away at it, but I can't help but feel that I really would rather be giving my mom the 9.65% interest instead of giving the credit card company that money.

So I wondered, couldn't I just do that? Is there any reason that would be a bad idea?

I know she would want to support me - she just gets really nervous when I talk about details and she wants me to handle that. I was thinking it would benefit her as much as it would benefit me even if we were to do 7%, that's still higher than what she'd get elsewhere - am I wrong about this? Could I set up something where I pay her monthly and let her receive the interest? How would I go about creating an excel spreadsheet that would track this? Are there downsides to doing this (other than the "will you actually pay her" argument - I will. I love her and I want her to get her money back). I don't want to have her lose money in this and I want this to benefit her.

What do you think? Could this work?


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 Post subject: Re: Mom as credit card - could this be good for her?
PostPosted: Wed Apr 06, 2011 9:06 am 

Joined: Wed Oct 07, 2009 4:16 pm
Posts: 961
I have an antsy reaction to reading this. My gut reaction is to tell you to leave her money alone, and pay your credit card debts yourself. Learn from your mistakes by figuring out how and why you got into such a big debt in the first place.

How can it be assured that you won't go back into debt again once its been paid off with your mothers' money. I understand you intend to make payments with interest to her, but I don't like situations like that.

Pay your debts on your own, and protect your mom's money for her as she is trusting you to do that. Part of that trust is investing the money in different avenues that you think she would be comfortable in.

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 Post subject: Re: Mom as credit card - could this be good for her?
PostPosted: Wed Apr 06, 2011 9:43 am 

Joined: Tue Mar 23, 2010 3:31 pm
Posts: 405
Fantasma is right. It is all kinds of unethical.

The inherent risk involved is far more than a diversified investment plan. Even if you have all the best intentions, you could just as easily get laid off tomorrow(or injured, killed, kidnapped, thrown in prison for someone else's crime, etc...) and never pay the money back, or pay it back but in 10 years losing a decade's worth of compound interest.

ESPECIALLY WITH HER 3 YEARS FROM RETIREMENT. At this stage, you want to be much more risk-averse than the average investor.

Basically, put it this way. If you, right now, had $10,000 earning 3% interest. Would you lend it to me to pay off my consumer debt if I promised you 7% interest?

And I'm a stranger. If I dont pay you lose out on the money, but at least there is no ill will and family strife. If you dont pay your mother back for whatever reason, your family will assume the worst and cause all sorts of problems.

Basically, this is a terrible idea.


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 Post subject: Re: Mom as credit card - could this be good for her?
PostPosted: Wed Apr 06, 2011 10:45 am 

Joined: Mon Nov 01, 2010 5:15 pm
Posts: 1201
I agree 100% with fantasma & savarel. This is the mother of all bad ideas!!!!!!!!!

Are there any other family members/siblings to consider? Is mom married?


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 Post subject: Re: Mom as credit card - could this be good for her?
PostPosted: Wed Apr 06, 2011 10:50 am 

Joined: Tue Mar 11, 2008 12:19 pm
Posts: 1778
Location: Ottawa, Canada
This is a terrible, terrible idea. Absolutely do not do this. Do not mix your debt and your mother's retirement funds.


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 Post subject: Re: Mom as credit card - could this be good for her?
PostPosted: Wed Apr 06, 2011 11:05 am 

Joined: Thu Aug 13, 2009 2:17 pm
Posts: 4
Interesting that you're all so against it. It was actually my brother's idea. The reason I'm in debt was in part graduate school and in part upkeep on the house she and I both own. I take responsibility for the money - I don't think she needs to pay it off. I'm not asking for her to forgive any of it. I just know her money is sitting there and she likely won't use it right away even when she does retire - it's in addition to her formal retirement funds. It's not like I'm pillaging her 401k. It seemed to make sense to me because she wouldn't likely get the kind of return that I am giving the credit cards companies in any of the venues that I was looking to invest her money. It seemed like a win-win to me.

I'm quite stable, I have a good job that isn't likely to go away any time soon (thank god). We're selling the house we own together. Mom is single, she has just myself and my brother to support her when she retires. If I did get into trouble I could always take a personal loan or some such thing to pay her back the money I still owe. I'm really not trying to rip her off. I suppose it does sound from the outside like I'm trying to get out of paying my credit cards off. I appreciate the concern and the suggestion that I was blindly acquiring debt etc. but much of it was intentional so that I could get through a lengthy phd program. I'm really not looking for an easy out here.

So humor me. I get that YOU wouldn't do this, but if I were to do this, how would I set up an excel spreadsheet to keep track of something like this?


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 Post subject: Re: Mom as credit card - could this be good for her?
PostPosted: Wed Apr 06, 2011 11:38 am 

Joined: Mon Nov 01, 2010 5:15 pm
Posts: 1201
mulkey wrote:
Interesting that you're all so against it. It was actually my brother's idea. The reason I'm in debt was in part graduate school and in part upkeep on the house she and I both own. I take responsibility for the money - I don't think she needs to pay it off. I'm not asking for her to forgive any of it. I just know her money is sitting there and she likely won't use it right away even when she does retire - it's in addition to her formal retirement funds. It's not like I'm pillaging her 401k. It seemed to make sense to me because she wouldn't likely get the kind of return that I am giving the credit cards companies in any of the venues that I was looking to invest her money. It seemed like a win-win to me.

I'm quite stable, I have a good job that isn't likely to go away any time soon (thank god). We're selling the house we own together. Mom is single, she has just myself and my brother to support her when she retires. If I did get into trouble I could always take a personal loan or some such thing to pay her back the money I still owe. I'm really not trying to rip her off. I suppose it does sound from the outside like I'm trying to get out of paying my credit cards off. I appreciate the concern and the suggestion that I was blindly acquiring debt etc. but much of it was intentional so that I could get through a lengthy phd program. I'm really not looking for an easy out here.

You know what they say....the road to ruin is paved with good intentions.

Quote:
So humor me. I get that YOU wouldn't do this, but if I were to do this, how would I set up an excel spreadsheet to keep track of something like this?

But just to play devil's advocate, I'd skip the excel spreadsheet. I'd get a lawyer & draft up legal documents stating how much you are borrowing & the repayment terms. Both of you sign it & get it notarized. Seriously. Don't take this lightly. It will bite you in the a$$ every time.


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 Post subject: Re: Mom as credit card - could this be good for her?
PostPosted: Wed Apr 06, 2011 11:42 am 

Joined: Wed Oct 07, 2009 4:16 pm
Posts: 961
Or her mom, the bite in the a$$ that is. I totally back up the contract idea with lawyer present.

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 Post subject: Re: Mom as credit card - could this be good for her?
PostPosted: Wed Apr 06, 2011 12:03 pm 

Joined: Tue Mar 23, 2010 3:31 pm
Posts: 405
Quote:
If I did get into trouble I could always take a personal loan or some such thing to pay her back the money I still owe.


And if you died tomorrow, what happens to Mom's retirement money?

BAD IDEA.

She is 3 years from retirement. This is a high risk "investment". Speaking strictly from the risk perspective of a prospective retiree, it makes no sense. From your perspective, it also makes less sense than a home equity loan for example, to pay off the credit cards.

If you are selling the house, use the proceeds to pay for the upkeep costs put on credit.


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 Post subject: Re: Mom as credit card - could this be good for her?
PostPosted: Wed Apr 06, 2011 12:34 pm 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1627
Location: Seattle, WA
"Lay people" such as your brother might suggest this because it seems like a good idea on the surface. Personal finance experts are pretty much unanimous that it's a bad idea. What does that tell you?

If all you want is an excel spreadsheet/formula, it's not that hard.
Code:
A B C D E
1 pmt date pmt amt interest balance Note
2 4/1/2011 $1000 loan inception
3 5/1/2011 $100 =(A3-A2)/365*0.0965 =D2+C3-B3


Fill down from row 3. Enter the actual date and amount in columns B and C, respectively, as you make each payment.

Stannius The Enabler


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 Post subject: Re: Mom as credit card - could this be good for her?
PostPosted: Wed Apr 06, 2011 12:39 pm 

Joined: Mon Nov 01, 2010 5:15 pm
Posts: 1201
stannius wrote:
Stannius The Enabler

:rofl:


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 Post subject: Re: Mom as credit card - could this be good for her?
PostPosted: Thu Apr 07, 2011 6:18 am 

Joined: Thu Aug 13, 2009 2:17 pm
Posts: 4
Thanks for your thoughts all, I appreciate the insights. She's my beneficiary for life insurance and if I died, she'd get my assets. I'm really committed to caring for her and making sure she feels stable and happy during her retirement. I know she's on her own and I'm trying to give her some stability - my brother wants the same for her. She's been really supportive of both my brother and I doing what we can. I just want to make sure she gets some return on her investments - as much as is possible.

I'll think more about the idea that I'm including her in a risky investment. Frankly though, the risk she and I took by investing in the house together was something that (in the end) turned out to be much riskier - yet still conventionally advised - than we could have imagined. In some ways, this doesn't seem nearly as risky though I do get that it's conventionally not advised. I'll think it over more before making any decisions. And yes, I will be using any money from the sale of the house (if there is any) to go against the credit cards.


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 Post subject: Re: Mom as credit card - could this be good for her?
PostPosted: Thu Apr 07, 2011 6:34 am 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5398
Add another vote to the BAD idea camp.

I am of the opinion that when you manage money for a relative (and I have/do) you must go to great lengths to avoid the appearance of impropriety and never commingle money.

You mother cannot afford the risk of lending to you. The market has priced that risk at 9.65% based on objective factors and on the credit card company's diversification of that risk among thousands of borrowers. If they were putting all of their eggs in one basket they would demand a much higher rate to compensate for the risk.

Even if you don't agree with the general idea that this is stupid, if you are doing a good job as a money manager you should be looking out for the risks to your mother's money and taking that into consideration in this decision. That is impossible to do when judging yourself.


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 Post subject: Re: Mom as credit card - could this be good for her?
PostPosted: Fri Jun 03, 2011 4:21 am 

Joined: Wed Jun 01, 2011 6:18 am
Posts: 1
Yes, I agree on the answer above, be responsible enough.


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 Post subject: Re: Mom as credit card - could this be good for her?
PostPosted: Fri Aug 19, 2011 4:05 pm 

Joined: Mon Jun 28, 2010 3:59 am
Posts: 74
I am not totally against it, I can see where you are coming from. Your mom money is like the central pot and you will pay here back. I am not an expert but I would consider the following:

 check the base rate for interest on saving as interest rate have fallen a lot recently.

 Does the amount of money she has and you want to use, to pay off your debt leave anything remaining for a rainy day? For unexpected situations that may occur eg a new roof? As the money would be tied up.

 Also when she retires will she need to use the money she has immediately.

Also with regards to using an excel spread sheet, it would be easier and reassuring to contact a financial specialist to calculate this, I would consider it involving a compound interest sum.

This is only my opinion, hope it helps.


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